Shares in RSA plunged 14 per cent today after the insurance group shocked the market by slashing a third off its dividend payout.
The owner of the More Than insurance brand was the biggest faller on the FTSE 100 after it said shareholders would receive a final dividend of 3.9p per share on 24 May, down from last year’s payment of 5.82p. A similar cut is expected to be made to this year’s interim dividend.
Investors will receive a total payout of 7.31p per share for 2012, down from 9.16p the previous year, and the surprise cut wrong-footed analysts who had expected an increase to 9.3p.
Panmure Gordon analyst Barrie Cornes, who cut his rating on RSA’s shares from “hold” to “sell”, said: “We view the cut as very disappointing, given that nothing has materially changed over the last 12 months.”
RSA chief executive Simon Lee said the dividend reduction was a “prudent move” that had been prompted by falling bond yields, which saw the group’s investment income slide 11 per cent to £515 million.
He added: “It is absolutely the right thing to do for the business given the prospect of prolonged low bond yields. The new dividend is appropriate for the business today, sustainable into the future and will allow a progressive dividend policy going forward.”
The surprise move came as RSA unveiled a 6 per cent drop in operating profits to £684 million for 2012, despite a 5 per cent increase in net written premiums to £8.3 billion.
Richard Curr, head of dealing at Prime Markets, said RSA had been viewed as an “uninspiring but safe” investment thanks to its previous dividend yield.
He added: “Just as the share price has showed signs of delivering a solid recovery, management does a proverbial shooting in the foot by a massive 33 per cent cut in the dividend.”
RSA, which employs about 23,000 staff, has major operations in countries such as Canada, Ireland and Scandinavia, as well as across regions including Asia and Latin America.
Shares in the firm closed down 19.3p at 117p.